Commercial Real Estate Market May Be Recovering But It’s Going To Be A Long Journey

Real Estate Journal Online
11/4/10

There have been numerous reports saying that the commercial real estate market is faring better than the rest of the economy. While this may be true, a recent survey reveals that there should be caution in moving within the said market. The survey may agree with the reports, it also reveals that growth is but incremental.

The Real Estate Roundtable released its fourth quarter survey of over 110 senior commercial real estate executives and it agrees that the market indeed is improving, along with prices, transaction volume, and even access to capital. The survey, however, reveals that the improvement is mostly centered on “class A” properties that are well-leased and well-located. The respondents also talked of debt and equity shortage.

Since the start of the year, the overall Sentiment Index had a relatively flat trajectory but saw a one point drop this quarter to 73. The number will most likely stay that way as respondents say economy might not be “much better” a year from now but will only be “somewhat better”.

“Positive opportunities certainly exist; however, our industry overall will continue to be weak until the job market improves. More than anything, we need a return to hiring, which would boost consumer spending, lift occupancy levels and operating income, and begin to repair the dramatic erosion of commercial property values, which are fundamental to owners’ ability to obtain debt and equity capital. That’s why we continue to urge policymakers to look at policy ideas through a ‘job creating prism,’” says Roundtable Chairman Daniel M. Neidich (Dune Real Estate Partners).

Jobs are very important in spearheading the economic growth. With job creation remaining low, this should give everyone a cue to stay cautious.

Debt availability also gained little support from respondents as those saying it is “somewhat better” outweighs those saying it is “much better”. There was also a slight increase in percentage of those admitting debt availability is “somewhat worse” this year.

Even in the equity side, those saying that equity availability is better have declined from last year’s. And those saying that the situation is “about the same” saw a 2% increase in the fourth quarter survey.

The signs may be good for the commercial real estate market. This is no reason, though, to be reckless as much work still needs to be done for the market to function properly as before.

 RE Journal Online